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REIT conversions are hot, hot, hot

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January 18, 2013 – Comments (4) | RELATED TICKERS: GEO , LAMR , CORR

I have been extolling the virtues of one type of special situation, REIT conversions, here for a while now.  Basically this is when a normal company that has significant real estate assets applies to convert all or part of its operations into a Real Estate Investment Trust.  Once the conversion is complete, the company or division's dividend usually increases substantially, and its share price follows as well.

Take a look at a stock that I decided to close out today, the private prison operator GEO Group (GEO).  It announced that it was going to attempt to convert into a REIT months ago.  When it did, I went long the company in CAPS. 

Back in August I said the following about the company:

"I'm personally not all that comfortable with investing real money in a private prison operator from a moral perspective, but I think that a conversion into a REIT would be a great move for Geo Group (GEO). This situation hasn't gotten nearly as much publicity as Corrections Corp.' of America's (CXW) efforts to convert, probably because of Bill Ackman's involvement in CXW, so that may be why it appears slightly cheaper. CXW is up over 17% versus only 2% for the S&P 500 since I added it in CAPS on news of its potential REIT-conversion back in April. I'm adding as many REIT-conversions as possible in CAPS to track their performance." 

Even after missing out on the initial pop, shares of this company have soared.  I'm up 59% on the pick in six months versus a 5% gain in the S&P 500.  Do I like the company's business and future prospects...not particularly.  Quite frankly, I'm not even sure that I am morally comfortable investing in a company that makes money by locking people up.  However, it has been an outstanding investment.  REIT conversions usually are.  Heck, GEO is up nearly 7% today on news that its application to become a REIT was approved.  It has been known for months that this was going to happen and I rarely, if ever see a company get its REIT application denied, yet the stock exploded to the upside nonetheless.  Now that the conversion is official, GEO stated that it is raising its dividend from its former 2.6% to over 6%.  That's a pretty attractive yield in today's low interest rate environment.

Other examples of this REIT conversion outperformance are everywhere.

Just yesterday, CBS announced that it was spinning off just part of its outdoor advertising operations into a REIT and the shares of this $25 BILLION dollar company still soared over 12% at one point.

Why CBS Shares Jumped

Today, Cyrus One (CONE) the data center REIT spinoff of Cincinnati Bell (CBB) began trading.  Not only did the stock price above range at $19 but it's trading up over 10% at $21/share right now.

REIT conversions are hot, hot, hot.  So where will the next ones come from?  One that I currently own here in CAPS and in real-life is Lamar Advertising Company (LAMR).  I added shares of it here in CAPS in August when it announced that it will be converting into a REIT.  Is this a special company?  Not really?  Do I see exceptional growth prospects in the outdoor advertising aka billboards sector?  Not really, though digital billboards and an increase in marketing spending should help.  It's all about the conversion.  Today LAMR is up nearly 28% versus a 5% increase in the S&P and it hasn't even officially converted yet.

Another future REIT conversion that I own is CorEnergy Infrastructure Trust (CORR).  I have a feeling that this one has a lot of room for share price appreciation in the coming months.

If anyone is familiar with any other similar situations out there that I haven't mentioned, please let me know. 

Thanks for reading everyone!  I hope that you all have great weekends :).

Deej

4 Comments – Post Your Own

#1) On January 18, 2013 at 12:45 PM, Mega (99.96) wrote:

http://seekingalpha.com/article/1118621-ipo-preview-cyrusone

DFT seems like a little better deal.

http://seekingalpha.com/article/1118651-ipo-preview-suncoke-energy-partners-l-p

IPOdesktop likes SXCP which is about to hit the market. He rarely offers unqualified positive opinions.

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#2) On January 18, 2013 at 3:14 PM, Mega (99.96) wrote:

By the way I saw you ended your GNW green thumb, leaving a lot of points on the table in my opinion. I've sold a few shares but it's still my largest position. With the new CEO their long-delayed spinoff and reorganization plans are finally coming together.

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#3) On January 18, 2013 at 5:07 PM, TMFDeej (99.26) wrote:

Thanks for the update on GNW, Mega.  I might have to re-green-thumb it.  I figured that a lot of the easy money had probably alredy been made on it.  Congratulations that you own it in real-life.  That was a good one.  I should have listened to you ;).  At least I have the CAPS points.

Deej

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#4) On January 18, 2013 at 10:24 PM, tdonb (< 20) wrote:

I remember when you wrote up GEO. I thought it was interesting, but I couldn't buy into the idea. Look at what it has done. Amazing. I am checking into CORR after your mention last week. 

Thanks 

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